Small Business Nuances Revealed by Kabbage Program

A year after Kabbage Inc. launched a program that links social media and loyalty to woo small business customers, the company said it discovered some unexpected patterns.

The Atlanta-based provider of working capital for online merchants launched its Social Klimbing program last September to Kabbage account holders to existing or new Facebook fan pages and Twitter feeds, which are immediately analyzed and translated into additional capital, the company said. As merchants increase followers, activities and chatter on Twitter and Facebook, they will automatically gain access to more funds.

Small businesses that use Social Klimbing receive a merchant cash advance called a Kabbage Advance. There is no interest paid on the advance and businesses do not pay a prepayment penalty, according to the company. However, there is a fee based on how long a business keeps the capital, which can range from one to six months.

Advances are up more than 50% since June, said Marc Gorlin, chairman and co-founder of Kabbage. While the firm said it is open to establishing alliances with credit unions, banks have expressed more interest in seeing how they can leverage the technology platform to serve its customers.

Another discovery from the program’s use revealed a key characteristic of who’s using Social Klimbing.

“Delinquencies from customers who link their social account are about 20% lower than from customers who do not participate in Social Klimbing,” Gorlin said.

Kabbage also found that shipping data is also extremely valuable in the company’s underwriting process. As a result, the firm is exploring different ways to leverage this data in the future.

Since its launch in 2009, Kabbage has provided 30,000 businesses with a total capital of $22.5 million, according to the company. North of 30% of the funding has come through the Social Klimbing program, Gorlin said.

Kabbage offers lines from $500 to $40,000. After initially offer between $2,000 and $12,000, Gorlin said the company is currently testing lines up to $100,000. The rates vary depending on the size of the advance. Gorlin said funds can be in a user’s account in less than 10 minutes.

To set up an account with Kabbage, a business owner has to submit information, including where they sell their inventory, the type of payment service used, and business and personal information.

As more nontraditional players continue to entering the credit union space, members and small businesses may have more options to pick from. Some credit unions are making efforts to stay ahead of the competition by offering innovative products and services.

The $12 million Faith Community United Credit Union in Cleveland has plans to launch Faith Funding LLC to offer account receivable financing and purchase order financing, which is commonly known as factoring, said Vaughn Johnson, CEO of Faith Community United.

Faith Funding will purchase the invoice from the landscaping company and finance up to 90% of the amount due, Johnson explained. Once the payment is received, the CUSO will rebate the rest of the money and collect its fee for the transaction. The fee is based on the aging of the accounting. Meaning, the longer it takes for the invoice to be paid, the higher the fee. Johnson said the CUSO’s fee will range between 2.5% to 10%.